Question

Corporate Tax Return Project

Complete Form 1120 pages 1 and 2, Schedule D, Form 8949 and complete Schedule M-1 on page 5 of a 2018 Form 1120 for the following taxpayer using the information that follows:

• For purposes of this project only, do not attach other forms as required by certain lines of Form 1120.

Taxpayer Information:

Champion, Inc. is an accrual-basis, calendar-year corporation that operates five local “sports merchandise-stores”.  

Champion was incorporated on February 28th, 2017

Champion’s main office is located at 2346 Lake Shore Drive, Chicago, IL 60606

Champion’s employer identification number is 31-0923874.

Champion has total assets as of December 31, 2018 of $3,540,000

• Champion’s receipts for book purposes are as follows:
  • Champion’s gross receipts for the year totaled $1,700,000, which included returns and allowances of $123,000. Total Gross Receipts totaled $1,577,000.
  • Champion received $16,200 of interest income during the year, with $5,120 from City of DeKalb bonds and the balance from BMO Harris certificates of deposit.
  • Champion received dividend income of $4,000 from Disney Corporation.  Champion owns less than 5% of Disney stock.
  • In December 2018, Champion received $13,500 from a company that will lease excess space in Champion’s largest store from January 1 through October 31, 2019.
• Champion’s expenses for book purposes are as follows:
  • Cost of Goods Sold                                                                     $710,000
  • Salaries (including Officers’ Compensation of $123,000)                     230,000
  • Federal income tax                                                                         22,375
  • Depreciation                                                                                180,000
  • State & Local Taxes                                                                        92,300
  • Interest Expense                                                                              3,800
  • Repairs                                                                                         11,500
  • Rent                                                                                             36,750
  • Advertising                                                                                   20,000
  • Contribution to Gov. Rauner’s re-election campaign                               8,750
  • Property/Casualty Insurance Premiums                                               14,000
  • Business Meals                                                                                6,250
  • Business Entertainment                                                                     3,500
  • Hotel and airfare for business                                                             3,250
  • Premiums paid to key employee life insurance policy                        8,950
  • Charitable contributions paid                                                           78,750
• Champion’s total cost recovery for tax purposes was $132,500.
• Champion has a net capital loss carryforward from 2017 of $8,000
• Champion sold IBM stock on 7/4/18 for $4,100.  The shares had been purchased on 12/13/17 for $1,500.
• For its first tax year, Champion generated a $21,000 net operating loss.
• Champion made the following estimated income tax payments to the IRS for 2018:
  • Overpayment in 2017, credited to 2018                                         $1,550
  • 2^ndquarter, 3^rdquarter, 4^thquarter                                         $2,700 each

• Champion does not qualify for any other tax credits in 2018.
• Any overpayment of 2018 tax should be credited to its 2019 estimated taxes.

Answer 1

Calculation of net profit-

Profit and Loss account
Expenses	Amount	Income	Amount
Cost of goods sold	710000	Gross receipts	1577000
Salaries	230000	Interest Income	16200
Depreciation	180000	Dividend	4000
state and local tax	92300	Lease charges	13500
interest expnses	3800
repairs	11500
rent	36750
advertising	20000
property insurance premium	14000
business meals	6250
business entertainment	3500
hotel and airfare	3250
Premiums paid to key employee life insurance policy	8950
cost recovery	132500
Net profit	157900
	1610700		1610700

Net profit - 157900

Less - Contribution to Gov. Rauner’s re-election campaign - 8750

Less - Charitable contributions paid - 78750

Less - capital loss carry forward - 8000

Less - net operating loss of 2017 - 21000

Taxable Income - 41400

Assume that Tax rate is 30%, so the tax payable will be = 41400*30%

= 12420

Tax on profit of sale of IBM shares-

=4100-1500

=2600*15%

=390

Assume that Income tax rate on short term capital gain is 15%

Total tax payable in 2018 = 12420+390 = 12810

Less - Taxes already paid = 1550+2700+2700+2700 = 9650

over payment of taxes credited to 2019 = 12810-9650 = 3160